Good post Snoopy, cheers. When I read your first post on the thread a while back my thoughts were that you would have been far better off indexing, but that may not be true in the future.Quote:
Actually there is a very good reason to hold some debt, particularly at the moment when the bank is offering you a decent interest rate (term deposits) AND when the potential of falling interest rates can see capital growth in a fixed interest portfolio (bonds). The counterfactual to that 'bond option' being that if interest rates do not fall, then you will be 'forced' to endure high interest returns with no capital growth while you wait until interest rates fall (not too bad as a second choice scenario option).
You are thinking in nominal rates which to me are meaningless. When thinking of real rates you can forget CPI as well, inflation for the average consumer when measured properly will eat your term deposit and then some.
Yes if you can predict future rates then bonds are fine. Nobody can however and perhaps you missed the biggest point of all when you said 'if interest rtes do not fall' well what if they rise dramatically? When everyone KNOWS that rates are coming down this year... Look out.
I would not take a term deposit offering 15% right now, no chance, probably not even 20% as this would mean selling equities to fund it and I have no idea what price I could buy them back at.
https://www.podbean.com/ea/pb-pmi9u-14f0abc Listen to this from the 23 minute mark, really good debate on why NOT to hold debt of any type, from a very clever dude.
Yet in the longer term equity markets do outperform bond markets. So in this sense I agree with SR on the wasted investment potential of fixed interest / bonds. But the advantage of holding fixed interest in the short to medium term is that such investments provide a 'holding pen' for your cash that is waiting to be deployed, while paying you to 'hold the pig' to boot.
Implying the ability to time the markets or switch between at opportune times. I cannot do this. Everyone else can with ease but not me!
Equity investments require careful evaluation of operational downside risk. There is no point in investing in a company that you are not happy with just becasue it is an 'equity investment'.
Massively correct.
The mantra that 'equity always performs better' does not apply to all stocks, all of the time.
Correct of course
Even the likes of Buffett only turns up with one or two serious investment opportunities per year from all Berkshire's researched potential opportunities out there.
You highlight someone who is one of the worst positions of any investors in the world due to the size of funds to deploy. Buffett with less capital was leveraged and would not hold cash/debt.
SR considers Berkshire relatively undervalued. But another way of looking at it is to say that Berkshire is fairly valued and the DOW is overvalued. Of course your expected returns going forwards from Berkshire do not look so good if you view things this way.
I strongly disagree with this, my expected forward returns don't change if I view things like that. It is relatively undervalued according to my own discount rate as well as Buffetts who will only repurchase shares when they are well below intrinsic value conservatively estimated and I can promise you that this is not based on the relative value of the Dow. My expected return is around 12% over the next decade and I don't think this is a fair value for the safest financial asset in the world (US Treasury much more risk as you will lose money in real terms guaranteed)
As for judging NZ based investments against an American sharemarket index, that is just inappropriate in my view. Generally you are looking at entirely different kinds of businesses both in scale, industry classification and yield 'over there' compared to 'here'.
This is the entire point. If you are a 50 year old prostitute in Hamilton, you may well see fit to judge yourself against other similar ladies however perhaps you should be comparing yourself to 20 year old Auckland ones.
SNOOPY